Perfection does not exist.

To understand this is the

triumph of human intelligence; to expect to possess it is
the most dangerous kind of madness. - Alfred de
Musset

CASH FLOW
STATEMENT
Dr. Jatin Pancholi
Email: email@jatinpancholi.com
Website: http://www.jatinpancholi.com
Dr. Jatin Pancholi has compiled and prepared this teaching note from various sources, as the basis for class discussion rather
than to illustrate either effective or ineffective handling of a management situation. The handling of a management situation
requires personal guidance by a professional. To obtain copies, request permission to reproduce and to send feedback,
1
please send email to email@jatinpancholi.com. Visit website http://www.jatinpancholi.com. Those wishing to co-author next
edition of this handout are requested to contact via email.

CASH FLOW STATEMENT

CF Statement is a flow statement.

CFS indicates changes that took place
between tow successive Balance
Sheets.
The statement of cash flows provides
a thorough explanation of the changes
that occurred in a firms cash balance
during the entire accounting period.
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CFS

The statement of cash flows reports

cash receipts and payments of a
company during a given period for
operating, financing, and investing
activities.
Cash includes cash and cash
equivalents.
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Why CFS?

Balance Sheet P&L A/c insufficient.

It shows the relationship of net income to
changes in cash balances.
It reports past cash flows as an aid to:

Predicting future cash flows

Evaluating the way management generates and
uses cash
Determining a companys ability to pay interest
and dividends and to pay debts when they are
due

It identifies changes in the mix of productive

assets.

Why CFS? . . .
The statement of cash flows, along
with the income statement,
explains why balance sheet items
have changed during the period.
Legal rules.

Why CFS?

The relationship among the balance

sheet, income statement, and statement
of cash flows:
Balance Sheet
December 31,
19X0

Balance
BalanceSheet
Sheet
December
December31,
31,
19X1
19X1
Income Statement
Statement of Cash Flows

Activities Affecting Cash

Operating activities - transactions
that affect the income statement
Investing activities - activities that
involve (1) providing and
collecting cash as a lender or as
an owner of securities and (2)
acquiring and disposing of plant,
property, equipment, and other
long-term productive assets

Activities Affecting Cash . . .

Financing activities - activities that

include obtaining resources as a
borrower or issuer of securities and
repaying creditors and owners

Operating Activities

Cash inflows

Cash Receipts from

sale of goods/rendering
of services
Cash Received from
royalties, fees,
commission, etc.
Other operating
receipts

Cash outflows

Cash payments to
suppliers for
Goods/services
Cash payments to
employees
Interest and taxes paid
Other operating cash
payments

Investing Activities

Cash inflows

Sale of property, plant,

and equipment
Sale of securities that
are not cash
equivalents
Receipt of loan
repayments

Cash outflows

Purchase of property, plant,

equipment
Purchase of securities that
are not cash equivalents
Making loans

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Financing Activities
Cash inflows

Borrowing cash from

creditors
Issuing equity shares
Issuing debt securities

Cash outflows

Repayment of amounts
borrowed
Repurchase of equity
shares
Payment of dividends***

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Happiness is a positive cash flow.

(Fred Adler - Venture capitalist)

Thank You
Dr. Jatin Pancholi
Email: email@jatinpancholi.com
Website: http://www.jatinpancholi.com

Dr.

Jatin Pancholi has compiled and prepared this teaching note from various sources, as the basis for class discussion rather than to illustrate
either effective or ineffective handling of a management situation. The handling of a management situation requires personal guidance by a
professional. To obtain copies, request permission to reproduce and to send feedback, please send email to email@jatinpancholi.com. Visit
website http://www.jatinpancholi.com. Those wishing to co-author next edition of this handout are requested to contact via email.

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